1. To provide Council with draft options for a
Remuneration and Employment Policy under the Local Government Act 2002, that
addresses paying the Living Wage to Council employees, for their approval.

2. To provide an update on progress with
discussions around how Council can require Council contractors to pay the
Living Wage to their workers.

Recommendations

It is recommended that
Council adopts the Living Wage Policy, attached as Appendix
1 to the report, which allows the Living Wage to be paid to employees on a
case-by-case basis.

Background

The Living Wage

3. Staff
prepared an extensive report on the Living Wage and its implications for the
Finance and Performance Committee of Council. For completeness, that report is
attached as Appendix 2 to this report.

4. In
summary, the Living Wage Movement Aotearoa New Zealand defines the wage as:
‘The income necessary to provide workers and their families with the basic
necessities of life. A living wage will enable workers to live with dignity
and to participate as active citizens in society.’

5. The
original Living Wage identified in December 2012 and announced in 2013, was
constructed through independent research by the Family Centre Social Policy
Research Unit led by Mr Charles Waldegrave and Dr Peter King.

6. The
Living Wage rate is based on a rate in the market. A full review every five
years will involve analysis of the movements in expenditure items, wages and
inflation to check that the annual increases remain realistic, robust and true
to the Living Wage definition. The rate is based on research into the needs of
a model family of two parents (working 60 hours a week) and two children.

7. The
original New Zealand Living Wage rate of $18.40 per hour was publically
announced by February 2013.

8. As of 1
April 2017 the government minimum wage rose to $15.75 per hour.

9. As of 1
July 2017 the Living Wage will rise to $20.20 per hour. Annual adjustments to
the Living Wage are announced in February each year. Importantly, if Council
adopts a Living Wage, it will not be bound to these increases each year unless
it seeks accreditation status.

Hutt City Council Meeting of 14 March 2017

10. At the
Hutt City Council Meeting of 14 March 2017, the following decisions arising
from the meeting were as follows:

Minute
No. C 17101 (3)

Resolved
“That Council agrees in principle to the Living Wage.”

Resolved
“That Council instructs the Chief Executive to produce a draft remuneration and
employment policy under the Local Government Act 2002 that addresses paying the
living wage to Council employees, for consideration by Council by 1 July 2017.”

Resolved
“That Council requests that the Chief Executive continues to work with the
Living Wage – Hutt Group to investigate further how Council contractors can
apply the Living Wage to its workers by 1 July 2017.”

11. In the
extensive paper provided to Council’s Finance and Performance Committee issues
were raised in regards to the payment of the Living Wage. These included:

a. An
economist’s view on where the burden should fall on supporting lower
productivity or lower income workers (refer paragraph 27 and 28 of the Finance
and Performance Committee paper)

b. The
Treasury opinion on the Living Wage not being well targeted at low income
families with children (refer paragraph 30 of the Finance and Performance Committee
paper)

c. The
Living Wage and government assistance (refer paragraphs 32, 33 and 34 of the
Finance and Performance Committee paper).

12.
Officers note that should the living wage be applied as a blanket increase then
further work would need to be done to justify this for all employees to
determine if there would be any benefit in doing so and that the outcome may be
that there are no tangible benefits to be gained. (see paragraphs 38 and 39 of
this report).

13. Officers
are concerned that the implementation of the living wage, be it a blanket
increase or a case by case increase, does lead to treating employees
differently at remuneration review time. Any living wage increase on an annual
basis (after having assessed affordability etc.) would become automatic and
those employees would effectively not be subject to our normal remuneration
review criteria, a component of which is performance.

14. While
Officers agree that paying a living wage will likely increase the calibre of
the candidate pool for a role, this may mean that lower skilled workers who are
often younger workers may therefore miss out on opportunities.

15. Officers
note that after a period of time there may be a request by external parties to
show proof of productivity gains, or similar, as a result of implementing the
living wage. Should this occur and the results show no increase to
productivity then this may reflect badly on Council. However regardless of
this, the hourly rate would remain the same and could not be reduced once in
place.

16. Officers
note that should the living wage be implemented and, after assessing on a case
by case basis casual employees or other groups of employees were excluded, then
this may lead to dissention between workers and goes against our one team
approach.

17. Officer
recommend a cautious approach to assessing the application of the living wage
on a case by case basis ensuring we also take into account Hutt City Council’s
internal remuneration policy and practices (see paragraphs 35, 36 and 37 of the
Finance and Performance Committee paper).

Discussion

Remuneration and Employment Policy

18. Under
clause 36A of Schedule 7 of the Local Government Act 2002 (the Act),
Council may adopt a Remuneration and Employment Policy.

19. Clause
36A reads:

(1) A
local authority may adopt a policy that sets out the policies of the local
authority in relation to -

(a) employee staffing levels;
and

(b) the remuneration of
employees

(2) A
local authority must review a policy adopted under this clause at intervals of
no more than 3 years.

21. A ‘Living
Wage’ is not something that is specifically provided for in legislation or
law. It is essentially an increase in the minimum wage an employer is prepared
to pay its staff.

Lawfulness

22. If
Council does want to pay a living wage, the issue, in a local government
context, is whether it is lawful. There are 2 main challenges to the
lawfulness. First, the purpose of local government in section 10 of the Act
provides that the purpose of local government is to:

10 Purpose of local
government

(1) The purpose
of local government is—

(a) to
enable democratic local decision-making and action by, and on behalf of,
communities; and

(b) to
meet the current and future needs of communities for good-quality local
infrastructure, local public services, and performance of regulatory functions
in a way that is most cost-effective for households and businesses.

(2) In
this Act, good-quality, in relation to local infrastructure, local public
services, and performance of regulatory functions, means infrastructure, services,
and performance that are—

(a)
efficient; and

(b)
effective; and

(c)
appropriate to present and anticipated future circumstances.

23. The
challenge to the living wage that could be taken, relying on this section, is
that it is outside the powers of Council to implement. This is because doing
so would not be the “most cost-effective” option for Council. It obviously
relies on Council not having done any background work to establish whether
paying the living wage is the most cost-effective option.

24. Some
legal opinions downplay the ability of section 10 to be used to mount a legal
challenge. They read this section as more of a high level direction from
central government to local government and not as something that can be used to
mount a judicial review. This has yet to be tested in court.

25. Regardless,
Council can be judicially reviewed for a variety of reasons, relating to its
decision-making process and to the reasonableness of its final decision.

26. If
Council was to increase the minimum amount it paid staff, purely to allow
employees to have a better quality of life, it would open itself to the risk of
legal challenge.

27. The
Public Service Association (an employee union) engaged Matthew Palmer QC and
asked him for an opinion on whether it was “prohibited” for a Council to pay
its staff the living wage. This legal opinion eventually concluded that it was
not prohibited for a Council to pay the living wage, but only after
consideration of the benefits to the organisation that may result from paying
the living wage. Mr Palmer said a “well-reasoned” living wage [policy] would
be unlikely to be overturned by the courts. Even this most generous of legal
opinions does not simply allow of living wage to be introduced as a purely
welfare based policy. It still considers that the living wage should be tied
to associated benefits and well-reasoned.

The legal advice

28. This is really
the conclusion of all the legal opinions. The legal opinion Council has
received from Simpson Grierson Lawyers is no different. That legal advice is
in 2 parts, attached as appendices 3 and 4 to this report.

29. Its
conclusion is that the level of risk associated with paying a living wage
depends on the quality of the decision-making to implement it.

30. There is
no risk associated with not paying a living wage.

31. It
advises there is low risk associated a policy that directs Council to analyse
the cost-effectiveness and pay the living wage on a case-by case basis.

32. The
highest risk comes from adopting a policy that requires the Council to pay a
living wage generally.

Most cost-effective not necessarily the cheapest option

33. One of
the important things that was emphasised by the legal advice was that the
most-effective option does not necessarily mean the cheapest option.

34. The
advice notes:

Where there are genuine
additional expected benefits from adopting a particular option, and that option
happens to be a more costly option, then it is open to the Council to adopt it
on that basis and the additional benefits are worth the additional costs.

Options

35. There are three
options:

a. Do not adopt
the Policy and accordingly not adopt the proposal to pay a living wage (status
quo); or

b. Adopt a Policy
that broadly refers to the benefits of a living wage, and that requires a
living wage to be paid to Council employees; or

c. Adopt a Policy that broadly refers to the benefits of a living wage,
and that directs the living wage to be paid in circumstances where it can be
shown to be the most cost-effective way for Council to provide a particular
service.

No living
wage

36. Not
adopting a Policy is maintaining the status quo. There is no legal risk
associated with this option. Council’s obligation to be a good employer does
not require payment of a living wage as a minimum level of pay.

A ‘blanket’ living wage

37. Adopting
a ‘blanket’ living wage policy that broadly refers to the benefits that may be
associated with a living wage is the second option open to Council. The big
issue with this option is that Council has not currently done any work to
determine whether it has issues with its employees that may be remedied by the
implementation of a blanket living wage.

38. If
Council is minded to adopt a blanket living wage then the highest risk way of
doing this would be to essentially ignore the requirements of the Act and
implement this policy purely to improve the standard of living for its
employees.

39. If
Council was minded to consider adopting a blanket living wage then the ‘safest’
way to proceed would be to require further work to be done to justify this.
This is because the work has not currently been done to link the possible
benefits of paying a living wage to the actual situation of Council.

A case-by-case living wage

40. A Policy
adopting a case-by-case approach to implementing the living wage is the
preferred option. This would allow the work to be done by the CEO and staff,
to justify applying the living wage. It could be done by reference to targeted
classes of role or by reference to larger groups, for example ‘casual staff’.

41. The
legal advice is that this approach would be the lowest risk, if Council did
want to implement a living wage.

Implementation

42. If
Council chooses not to adopt a living wage policy or to adopt a ‘blanket’
policy, there are no major implications in terms of implementation, other than
setting a date from when a blanket policy will be applied.

43. Should
Council adopt the policy, the implementation will be conducted by Council
Officers in accordance with the policy.

44. To
address the legal risks the Council needs to establish a plausible assessment
for cost effectiveness as a basis for introducing the living wage for its
staff. This should include assessing the financial benefits to the Council
(and therefore the Community) if the living wage was introduced. These might
include productivity gains and reduction in turnover.

45. It is
noted that currently the Council does not have an issue with turnover. Our
turnover rate remains fairly steady year on year at around 10%.

46. Officers
will develop assessment criteria which will address the question of cost
effectiveness in the delivery of a service. This will include assessment of
potential productivity increases, brand and reputation in attracting and
retaining staff and reduced absenteeism.

47. SLT,
together with Human Resources, will review the assessment results and report
back to the Finance and Performance Committee with the outcomes for their
feedback.

48. The
assessment exercise will not be done until after the Council’s annual
remuneration review for 2017 is completed in August. At that stage we will be
able to confirm employees who remain under the Living Wage level.

49. The report back to Council’s Finance and Performance Committee will
take place in September 2017.

50. Implementation of outcomes from the assessment exercise will be
effective from 1 January 2018.

Contractors

51. Living
Wage Aoteroa is calling for workers whose wages are funded by public money to
receive a Living Wage as well as large enterprises that can afford to do so.

52. Whilst
this is their main aim they encourage employers to also extend this to
contractors who deliver services on a regular and ongoing basis. This is done
normally through the procurement process whereby the tendered would have to
assure the customer that their staff were being paid a living wage.

53. This is
a requirement for an ‘accredited living wage employer’. Officers recommend
that Council only consider extending Living Wage requirements to contractors
when the Living Wage has been applied to Council employees in accordance with
the Remuneration and Employment Policy.

General report on progress

54. Jo Beck,
Divisional Manager Human Resources and Bradley Cato, Solicitor met with Lyndy
McIntyre and John Ryall from Living Wage Aoteroa to discuss the approach to
investigating further how Council contractors can apply the Living Wage to its
workers.

55. A report
was provided by Living Wage Aoteroa outlining their views on how extending the
Living Wage to workers employed via contractors at Hutt City Council could be
approached. This report is attached as Appendix 5 to the report.

56. The Chief Executive and officers will continue to work with Living
Wage Aoteroa to progress this work and present a plan back to Council’s Finance
and Performance Committee in September 2017.

Financial
Considerations

57. Payroll
data for all Council employees irrespective of employment type (full time, part
time, or casual), was analysed for a 12 month period. This provided an
estimate of cost to Council if the Living Wage had been paid to employees who
were paid less than the Living Wage.

58. Inclusive
of holiday pay and Kiwisaver, but excluding employer ACC obligations (this
would be an additional 1%); the additional direct cost to Council would have
been $470k. This is before considering the issue of pay relatively which is
estimated would cost a further $100k to address. The total cost to Council if
the Living Wage had been paid for all employees is therefore estimated to be
$570k.

How should the Living Wage be funded?

59. Wages are an operating cost and should be funded as such and not
from additional debt. Any additional costs not able to be recovered from user
charges would need to be added to the General Rate requirement. If no
additional income is recovered from increased activity revenues, rates would
need to increase on average by about 0.6% plus GST to fund all of the
additional cost.